California Dark Money Case Reveals Complex Schemes to Hide Donors
501c Groups, Campaign Finance Reform, Elections, Financial, Disclosure, Organizations, American Future Fund, Americans for Job Security, States, California, Supreme Court, Citizens United decision, McCutcheon v. FEC
Yesterday, the California Fair Political Practices Commission (CFPPC) announced a $1 million settlement with two Koch brothers-related nonprofit groups for failing to disclose their involvement in 2012 campaigns related to two California ballot initiatives. CFPPC also told the groups to turn over the $15 million in contributions they received as part of a complex money laundering scheme to fund political activities without disclosing the source of the funds that reveals several important facts about the current state of dark money and campaign finance laws.
The scheme involved millions of dollars raised by Americans for Job Security (AJS), a Virginia group organized as a business league under section 501(c)(6) of the tax code, for a 2012 “issue advocacy” campaign related to two California ballot propositions. AJS raised $29 million for the campaign, but as Election Day approached the group became concerned its efforts might be considered “express advocacy” under California law, which would require it to disclose its donors. So AJS donated $25 million to the Center to Protect Patient Rights (CPPR), a Koch brothers-related section 501(c)(4) group, and CPPR gave $18 million to another 501(c)(4) group that then gave $11 million to a California political action committee fighting the propositions. CPPR also gave $7 million to the American Future Fund, an Iowa-based 501(c)(4) group, which immediately created a California affiliate and gave it $4 million to spend on the ballot initiatives.
The failure to disclose CPPR’s donations intended to be used on the ballot questions led to CFPPC’s lawsuit and the settlement. AJS, however, had no obligation under California law to report its contribution because CPPR technically could have used it for any purpose, or to disclose its donors because they gave for an issue advocacy campaign that didn’t specifically call for people to vote for or against the initiatives. The announcement of the settlement was followed by the startling unintentional disclosure of many of AJS’s donors through the release of a donor list lawyers for a Republican fundraiser provided to CFPPC but poorly redacted. This allowed reporters to ascertain that most of the money came from billionaires such as the owners of the Gap clothing chain, Charles Schwab, Eli Broad, and Sheldon Adelson, as well as Crossroads GPS.
This scheme highlights the increasing use of section 501(c)(6) by groups acting as both participants